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Citizens Bank Settles Discrimination Lawsuit

May 10, 2011 By

Citizens Bank has agreed to settle a federal lawsuit over allegations that it systematically denied loans to African-American neighborhoods in Detroit. Under the settlement, the bank will spend $3.6 million on grants and loans to African-American households.

“This type of discrimination is part of the web of intolerable practices that stripped vast amounts of wealth from communities of color in the last decade,” Thomas E. Perez, Assistant Attorney General in charge of the Justice Department’s Civil Rights Division, said in a press release.

In a lawsuit, the Justice Department alleged that Flint-based Citizens Republic Bancorp, which operates as Citizens Bank, avoided giving loans in Detroit and the suburbs of River Rouge, Inkster and Romulus, all of which are predominantly African-American.

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“It’s good news the [Department of Justice] is cracking down on practices like this,” says Kathleen Day, spokeswoman for the Center for Responsible Lending, “but it’s very sad—and bad for everyone, whatever their skin color?—that this type of behavior persists.”

To settle the suit, Citizens bank agreed to invest $1.5 million in loans in areas around Detroit that are majority African-American. Another $1.6 million will go toward a neighborhood stabilization program that gives homeowners grants of up to $5,000 toward fixing up the exteriors of their homes. In addition, Citizens will spend $500,000 to promote these programs in the community and to run consumer financial education programs.

The settlement still must be approved by a federal judge.

Image: Brian Turner, via Flickr

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Credit Continues to Grow as Economy Improves

May 6, 2011 By

Credit Continues to Grow as Economy ImprovesDuring March, consumers increased the amount of credit they carry on a year-over-year basis across nearly every lending category, according to the latest National Credit Trends Report from the credit monitoring bureau Equifax. In particular, the amount of consumer installment loans, auto loans and credit cards spiked significantly more than other types of credit.

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In all, auto loans rose 23 percent during the month, while consumers opened more than 14 percent more credit cards than they did in the same month in 2010, the report said. Similarly, various consumer installment loans rose 33.9 percent overall, reaching a five-year high.

In addition, the study found that consumers have been consistently more capable of paying their bills on time, reducing their debt and boosting the national average credit score as a consequence, the report said. However, available credit is still about 50 percent lower than the pre-recession levels observed in 2006.

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Many reports have come out in recent months highlighting the particular new trend in credit card borrowing that has seen consumers reduce delinquency and defaults significantly, the report said.

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Let Family be Family, Leave the Lending Business to the Banks

August 26, 2010 By

I remember when I was in high school and Friday night rolled around.  As most 17-year-olds, I was as broke as an old clock.  And, WOW, what $20 could buy in 1985.  So like most young kids do, I asked Banco Padres (the parent's bank) for $20 on a regular basis.  And it wasn't a loan for $20, because if it was then I defaulted on every single one of them.

So when is it time to stop asking family and friends for money?  It's my opinion that you should never, ever ask anyone other than a bank or some other form of official lender for money, ever.  Here's why...

  1. Most "loans" are paid back under the terms of a promissory note.  Borrowing dough from mom and dad is not.  It's paid back under some loose assumption of terms, which often leads to misunderstandings and hurt feelings.  And nothing makes Thanksgiving dinner more uncomfortable than the elephant in the room, which is "the guy carving the turkey owes me $10,000."  

  2. Co-signing is a temptation, which is fraught with peril.  Co-signing for a loan or anything for that matter is the financial equivalent of getting married.  You are officially connected and getting disconnected, which might seem really attractive, is next to impossible.  Lenders love two liable parties instead of just one.

  3. "He who gets gypped has the memory of an elephant."  Notwithstanding the fact that I've now mentioned elephants twice in this article, the quote rings true.  I can't remember who gave me what at my wedding, but I sure can remember the folks who gave us nothing.  It's human tendency to remember these things and nothing is worse than the constant memory of getting ripped off, by a loved one.

  4. Save the lending to the lenders.  Lenders are expected to be cut throats.  They'll report you to the credit bureaus, hire collectors to track you down, and might even sue you for delinquencies.  Do you really want to put your loved ones in that position?

Here's my suggestion, if you are seriously thinking of letting someone borrow money, just let them have it.  That way there's no expectation of getting paid back so there are no hurt feelings when the checks don't roll in.  But even then I'd think twice.  You're enabling irresponsibility by letting someone borrow or have money, plain and simple.  True example, a buddy of mine's father in-law borrowed $100,000 from my buddy's father.  He did this under the guise of saving his home and business.  Of course after he renewed his country club membership with a sizable chunk of the money it became quite obvious that he had no intention of handling the money as he had represented.

Let the banks be banks.  You be a friend or relative...and neither the two shall (or should) meet.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

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What Not To Do When In Escrow

June 1, 2010 By

One of the old home-buying bugaboos from years gone by has reasserted itself.  In the normal course of events, people buy a home and 30 or 45 days later their loan funds and they move in. What happens occasionally is that people will incur additional debts, and the additional payment on those new debts affects their qualifying. 

I can remember one instance where a guy who was marginally qualified went out and leased a new Mercedes Benz with an $800 per month payment. That additional payment almost sank him until we got a letter from his employer stating that it was their intention to reimburse him 100 percent for this expense. One other time, an about-to-be housewife thought of all the furniture she wanted and instead of waiting until escrow closed, went and bought it all.

Most of the time, even if people did this, it wouldn't matter because we had the credit report from before and, frankly, no one knew about it. But cases in which there was a long period between pre-approval and when escrow was ready to close, the credit report would "expire" after 90 days and we'd have to get a new one. The new debts would show up on the new report and we'd have to re-underwrite the file.  Most of the time it didn't matter, but it could.

Fannie Mae has indicated that they will begin requiring lenders to update the credit information right before loan funding. It applies to all laons and I simply cannot imagine that this is a BIG problem. But some bean counter back at Fannie Mae sees that it happens once in a while and all of a sudden they have an opportunity do make a new rule.

It's also not clear who will pay for it because by this time, all the documents have been drawn and the numbers can't change. But the cost is likely to be huge. Even if it's a cheap $10 report, were talking 10 times 10,000,000 loans every year. That's one hundred million dollars and you can bet neither Fannie Mae nor lenders will be eager to eat that! They will pass it on to you.

This also means that some people are going to get caught in a situation where their new debt means they no longer qualify for their mortgage and the deal will blow up. That's a whammy!  In all likelihood, they will also forfeit their earnest money, which will be retained by the seller. That's a double-whammy.

Most people aren't on the edge, but even well-qualified borrowers who incur new debt might find their loan closing delayed as their lender re-underwrites the file. Even this is hard to explain to an anxious seller.

So if you are buying a home, resist all temptations to go open a new account or buy something.  No new cards, no new things, no new debts, no new credit inquiries. Nothing! Zip! Nada! Zilch!


Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

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More Folk Wisdom on Getting Mortgage-Savvy

April 21, 2010 By

Mark Twain is another wonderful source of great quotes that cut to the heart of issues. He was perhaps the first author to get to the heart of America's belief structure with finely drawn characters that inhabit his two most popular books "The Adventures of Tom Sawyer" and "The Adventures of Huckleberry Finn."  His remarkable insight also led him to give some great quotes. Here's one of my favorites:

"It ain't what you don't know that gets you into trouble.

It's what you know for sure that just ain't so."

This is certainly true in the homebuying process. Out of my more than 4,500 clients I think I can safely say that in a majority of cases, I had to help them "unlearn" something that was not true.  You can't build a structure of good decisions on a foundation of factoids.  For those who don't know that word, it's a word coined by Norman Mailer. The Washington Post described it as:

"something that looks like a fact, could be a fact, but in fact is not a fact"

Some of these factoids were perhaps learned at a prior time when the world was a different place than it is today.  As I look at the cycles of the last 30 years, I can assure you that each five-year period was remarkably different than the one before it. Today the landscape is so totally different that almost anything you learned before is obsolete.

The other thing that is important to understand is that borrowers think that because they got a loan before that they can do it again. In many cases, if not most, that just means they will repeat the mistake they made the first time, perhaps with another new mistake thrown in for good measure.

Of course, the tricky thing in this whole process is that most borrowers do not know that they made a mistake. That falls under another great quote, attributed to Thomas Grey.

"When ignorance if bliss, ‘tis folly to be wise."

Well, my friends, ignorance is certainly not blissful. Even worse, it is expensive.  When you are buying a $400,000 home, one single mistake most people make can easily cost $7,000.  If it's an $800,000 home, you're talking $14,000.

The problem is that our industry does not offer simple coaching like this: "I have alternative A or alternative B.  B saves you $14,000. Which would you prefer?"  It would be easy if it was like that, but it isn't. You need training and help from an expert.

Bottom line, becoming educated about mortgages can pay big dividends. Read a book, maybe two or three.



 

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

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